Who Needs Car Companies?

DaimlerChrysler’s turning over Smart car distribution to United Auto Group represents a seismic change that makes large dealer groups even more powerful.

The GM-Renault-Nissan story is grabbing the headlines, but the DaimlerChrysler-Smart-UAG story is more important.

The day before Kirk Kerkorian dropped his bombshell suggestion to sell part of GM to Renault and Nissan, DaimlerChrysler dropped a bombshell of its own. It decided to start selling the Smart brand in the U.S. market.

The American media chattered all about the bizarre little 2-seater coming to these shores. But the real news is how the Smart will be sold.

Instead of putting the Fortwo within its own dealer network, DC turned the distribution over to the United Auto Group. The UAG is the second-largest dealer group in the U.S., with 173 franchises representing most of the major brands, selling nearly 280,000 new and used vehicles a year.

Oh yeah, the chairman of UAG is a guy named Roger Penske. Yes, that Roger Penske.

The Smart brand could have been offered to the Mercedes dealer network or to the Chrysler, Dodge or Jeep franchises. Instead, the auto maker decided to give the whole kit and caboodle to UAG.

This makes a lot of sense. The Smart Fortwo will have very limited appeal in most of the American market, except in cities and college towns.

So UAG can cherry-pick the markets where it will sell well, using its local dealers. If DC had limited the Smart brand to a handful of its own dealers, the rest would have screamed bloody murder – and maybe threatened a lawsuit or two.

One of the biggest hurdles to getting into the car business is establishing a dealer network. Sure, foreign auto makers can come up with the capital and expertise needed to design and build cars. But if they want to break into the U.S. market, they face a tough slog trying to develop a distribution network. Just ask Malcolm Bricklin.

My bet is the DaimlerChrysler-UAG announcement was heard loud and clear in China.

A number of Chinese auto makers are keen to sell cars in the U.S., and they’ve been watching Bricklin struggle to establish a dealer network here for his company, Visionary Vehicles, to sell cars made by Chery Automobile.

They now must be thinking, “Why should we go around to hundreds of dealers trying to cut deals when UAG gives us one-stop shopping?” And if not UAG, how about AutoNation or Sonic Automotive, or some other big dealer group?

I sense a seismic change coming where the large dealer groups become more powerful than they already are.

And this is just the first step. The next step is for some bright entrepreneur to have Italy’s Pininfarina design a car; hire Germany’s Porsche Engineering to develop it, contract Austria’s Magna Steyr to manufacture it; and use a U.S. dealer group to sell it.

Forget the GM-Renault-Nissan merger. Who needs car companies?

John McElroy is editorial director of Blue Sky Productions and producer of “Autoline Detroit” for WTVS-Channel 56, Detroit, and Speed Channel.